Takeover Interest In PacBrands Makes Sense: Moelis

Pacific Brands may have announced a net loss of $362.4 million Australian dollars (US$390 million) for the six months to Dec. 31, but it’s still attracting takeover interest.

Bloomberg News

Socks from Pacific Brands’ Bonds label are displayed at a Big W store in Sydney, Australia.

Following an unsolicited approach from KKR & Co. last month, the manager and distributor of brands including Bonds, Clarks, Dunlop, Hush Puppies and Slazenger said it has since received other enquiries. “There is no certainty that any agreement will be reached with any party,” the company said in its results announcement, adding it doesn’t propose to update the market on these discussions until they have concluded.

“I think it make sense for private equity because the company’s debt is at a reasonably conservative level, it’s generating good cash flow and there’s potentially quite a lot of restructuring that needs to be done out of the public eye,” he said.

Mr. Guyot said it was difficult to see where further cost reductions could come from following the company’s 2010 transformation program which included a decision to source more products offshore. He added Pacific Brands is unlikely to have the ability to sell any of its individual brands like Billabong did to cause a re-rating.

Mr. Guyot said the company was suffering from ongoing structural problems including the substitution of products for private label products, and like many retailers, has to combat ongoing cost increases out of China.

“A problem for any private equity firm looking at it is considering who would be a natural buyer on the other side,” he said, adding if any bid is formally lodged, it wouldn’t be at a large premium.

Pacific Brands — currently advised by Flagstaff Partners and Minter Ellison – has a market value of A$616 million.

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